Sunday, May 13, 2012

Is it time to panic sell? Are you Comfortable?

With the recent sell off in beans; one has to ask themselves what could we see happen in some of the other grains.  How much downside is left in these commodity and grain markets?

First off there are so many factors that will determine where these markets go from here that one really should NOT try to out guess it.  When marketing grain or doing a grain marketing plan you want to search for Comfort.

One thing you can do is try to evaluate the markets with a plan based on what happens in our markets and on the outlook.  For the outlook I like listing possible outcomes both good and bad; both macro items and specific items.

As example one might list Macro items as

The US Dollar
World Economy direction
Europe issues
Politics and Policy

Crop specific items might include

weather - drought- relative to supply
price - econ 101........
supply trend, demand trend, and price trend

The reason I like to list some of the above is to help get an idea of some of the possibilities that I feel could happen; especially when looking at extremes

One big extreme could be corn yield this year; if we hit 170 or higher we likely are swimming in corn and have corn starting with a 4.00, more then likely a 3.00 and possibly a 2.00

On the other extreme if we have yields like last year or less; we could easily see new highs for corn.  Perhaps close to the 10.00 or so that corn is presently worth in China

So after i have looked at these possibilities i need to ask my self some hard questions as for outlook and what ifs.  Such as if we see a huge drop have I put my self in a comfortable situation?  Will my crop insurance give me all the coverage i need?  Do i need to have more sold?  Do i want to own put option protection as another form of coverage?

What about to the upside; am i comfortable if we go up from here?  Do i have too much sold?   Do i need to own some cheap out of the money call options?

I could go on and on; asking and answer hundreds if not thousands of questions.   But at the end of the day I want to have one thing

Comfort.  I want to be comfortable so that I never have to Panic sell or Fear sell.   I want to be comfortable enough that I don't lose a wink of sleep at night if the markets go up, if the grain markets go down, or if they just don't do much of nothing.

How you get to your Comfort Zone is something that each of you will have to determine.  You might be there and if your not your gut is probably telling you so.  Listen to it.

There is a saying buy fear and sell greed.  Don't be so uncomfortable that you put yourself in that situation.  Put your self in a comfortable situation where you are making sales and using tools that allow you to be comfortable without thinking that you are getting greedy or that you are fear selling.

Be pro-active as it is the first step in getting comfortable.

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